I work for Navy, and this is BS. We are clearly lowering standards.
There never was any such discretion to my knowledge. Just that (1) it was a lot easier for prospective recruits to withhold medical info in the past and (2) even if prospective recruits were honest, recruiters had an incentive to encourage the m to lie. Quotas and all that (recruiter duty is infamous for long hours, toxic working conditions, and other quota-related stresses).
The real disconnect is between what senior leaders imagined was happening and what was actually happening. Sailors lie all the time. Until, that is, it becomes convenient for senior leaders to imagine they never lie, at which point they are always “shocked, shocked to find that gambling is going on” (or the same general idea).